A few months ago, PharmAthene, Inc. (NYSE: PIP) and Altimmune announced they were merging in an all-stock transaction to create an integrated and diversified immunotherapeutics company. PharmAthene shareholders will decide whether the merger actually goes through on May 4.

Ahead of the vote, and following an increase in government funding for Altimmune’s Anthrax Vaccine Candidate NasoShield™, Benzinga had the chance to chat with the CEOs of both companies, John Gill (PharmaAthene) and Bill Enright (Altimmune), who went into the business, financing, government contracts and catalysts, among other topics.

The Story Behind The Merger

Gill had been in PharmAthene’s board for more than 10 years. Two years ago, he was asked to step up as CEO as the company underwent a restructuring aimed at having enough cash to finalize a lawsuit with SIGA Technologies, Inc. (OTC: SIGA) without having to raise any additional capital.

“I immediately set some goals for the company,” he told Benzinga. “The first goal I had was to win an appeal of the lawsuit where we had been awarded over $200 million… Siga had chosen to go into bankruptcy, [so we had to go to court again]. We won that appeal at the end of 2015.”

“The second goal that I had was to negotiate a deal through the creditors' committee in the bankruptcy process for us to get paid by Siga on what I felt to be good terms. So, we finished negotiating that deal at the end of 2015 as well,” he added.

“Then the next goal was to get the money from Siga, collect the proceeds, and to distribute the proceeds in a tax efficient manner. So, we received all the money towards the end of 2016 and, during February, distributed 98 percent of the net proceeds to our shareholders.”

“The final goal, which leads to where we are today, was to maximize the value of what was left in PharmAthene by merging with another company,” the CEO explained. “We wanted to merge with company that could capture value from our anthrax vaccine program; we wanted a company that had high potential infectious disease programs and attractive commercial markets; we wanted an early stage and private company to merge with where our shareholders would get enough of the merged company to make it meaningful for them, and where the merged company could take advantage of our public listing and good relationships with shareholders and investors. Then the last thing we wanted was a strong management team.”

After looking at a large number of companies, PharmAthene decided to go with Altimmune, a company that met all of the above criteria.

“By combining forces, I think we created a very diversified immunotherapeutics company,” Enright supplemented. “We’ve got a portfolio of promising clinical and preclinical assets that are targeting attractive commercial markets. We’ve got a couple of innovative platform technologies that will position us well for continued growth. We’ve got a strong position in the anthrax vaccine market which is the real biodefense market. We’re able to leverage on the expertise of both companies in both the government contracting space and the vaccine development space to provide some current and near term revenue opportunities from some government contracts that we have.”

The Products

The combined company’s product candidate portfolio includes:

A seasonal influenza vaccine that’s about to enter Phase 2 clinical testing — in the third quarter of 2017. Data is expected for early 2018. This intra-nasally administered vaccine could replace AstraZeneca plc (ADR) (NYSE: AZN)’s FluMist, recently pulled from the market, as well as GlaxoSmithKline plc (ADR) (NYSE: GSK), Sanofi SA (ADR) (NYSE: SNY) and CSL’s traditional flu vaccines, which take much longer to act on both humans and animals.

A program aimed at treating chronically infected hepatitis B patients – similar to what Gilead Sciences, Inc. (NASDAQ: GILD) did in hepatitis C. The program is currently enrolling patients for Phase I trial; data is expected for the end of this year.

A NIAID (National Institute of Allergy and Infectious Diseases)-funded anthrax vaccine program. The Institute has granted a $28 million contract to move the program forward.

A BARDA (Biomedical Advanced Research and Development Authority)-funded anthrax nasal vaccine program. Altimmune has a $127 million contract to move this through Phase 2 clinical trials. Data are expected before mid-2018.

The Anthrax Vaccine Business

When asked what made Altimmune’s products worthy of government funding, Enright said: “The government [...] is looking for certain things to help protect the American public, interesting and novel technologies to help that process.”

Nowadays, the anthrax vaccine business has sales of more than $300 million per year, and they all come from one company – Emergent Biosolutions Inc (NYSE: EBS), Gill added. “The vaccines have relatively old technology. So, I know through conversations with BARDA that what they’re looking for to replace the Emergent vaccines are, first, a vaccine that has one dose protection within a relatively short period of time, and that could be 14 to 28 days. In talking to BARDA I asked them what a major advancement would be and the first thing they said was a vaccine like Altimmune’s NasoShield [...] That really got us a little bit more interested.”

“The second thing that they’re interested in is a vaccine with a very long shelf life, one that works quickly, with no more than two doses, and that doesn’t require temperature controlled storage. This means they want a dry formulation where, if some Marine gets a shot in the U.S. and he needs another shot later and he happens to be in Afghanistan, you don’t have to have special temperature controlled handling for what he or she is going to get,” he continued.

“So, the reason I think that the government is so interested in these programs [NasoShield and NasoVAX use the same technology platform] and they’re funded by NIAID and BARDA is because they actually have the potential to deliver exactly what the government wants for vaccines that will replace the current vaccines,” the CEO concluded. In fact, “the data for the immune response around anthrax [...] was called by our technical evaluators ‘the best data they’ve ever seen for anthrax.’”

The Q&A

Benzinga: Toward the end of 2016, Benzinga’s Shanthi Rexaline mentioned PharmAthene among the 6 best biotech stocks of 2016. This was based on your performance; your stock was up roughly 71 percent last year. Now, this year you are down 75 percent; so what do you think is going on?

Gill: We were in kind of a unique position last year, where we were not valued based upon the value of our R&D programs, but upon the SIGA litigation outcome, getting paid and distributing the money to our shareholders.

We were very careful about what we said to our shareholders and what was going to happen. In fact, everything was done in a very deliberate way, so that if we did succeed we would succeed in a way that made the investors happy and confident in what we wanted to do in the future basically.

So, when we finished the year, our stock price was around the same as the amount of cash that we were planning to distribute, $2.91 per share. We weren’t trading for a great deal more than cash.

Then we announced the merger, we paid the dividend, and after we paid the dividend the stock went kind of crazy for a while, but it’s settled in at about 80 to 85 cents a share. So, somewhere that applies a valuation for the merged company of approximately $135 million.

I’m actually pretty happy with where that has settled out. I think that’s without people really understanding what the story of the new company is. So, I think we’ve got a nice valuation to get started with; we will do a reverse split where the stock price will end up somewhere between maybe – I don’t know the exact price, but maybe $10 to $15 per share. And, I think when Bill and his team get out and really tell the story with the milestones that we have next year, I think we’re sitting with kind of nice starting point to generate some real value over the next year or two for people that want to invest in this company.

Gill: We will end up with about $20 million in hand when we close. That’s enough to get us past most of the critical milestones.

BZ: What is one goal you have as CEO for 2017?

Gill: My goal is actually to transition back to being a board member, and working with the rest of the board to create the best board we can possibly have, and to support Bill and the team in delivering on this plan that I think is really promising.

Enright: I think my goals are a little more aggressive than that, because I think this is a pretty transformative year for the company. I think that, in addition to successfully completing the merger and the integration of the two companies, the focus is really on the clinical programs and making sure we hit the milestones that we have in front of us because I think again, that will really drive shareholder value, allow us to continue to finance these programs, and really have potential paradigm-changing technologies brought to the marketplace.